Are you a little confused about cryptocurrency trading and investing?
Don’t worry not your fault!
It can be a little confusing even for experienced traders and investors, which is why it’s highly important that you do your research thoroughly before getting started!
So, firstly let’s start off with the difference between trading AND investing in cryptocurrencies.
When you invest in cryptos, you are buying that crypto to hold for the long term. That could be a few months to several years.
When you trade cryptos, you hold that crypto for as little as a few seconds to only a few weeks.
Either way, the aim is to make a profit. They are simply two different ways of doing that.
Cryptocurrency Trading: The Facts
When you trade a cryptocurrency, you bet on the price of that crypto moving up or down.
You can make that trade through a CFD. That stands for Contract for Difference.
This method is completed for you by a broker on a CFD platform. It’s the same as using a broker to trade stocks, shares and other assets.
Type “CFD platform” in your search box to discover the range of CFD platforms available.
The other way to trade cryptos is through an exchange.
On an exchange, you can make trades, buying and selling cryptos to make profits.
Doing it this way puts you in control of your crypto trading.
For those of you who spotted the word “bet” and are now worried that trading and investing is gambling, don’t panic!
Trading and investing is ONLY gambling when you do not have a strategy.
The reality is, investing money into the crypto market and buying a lottery ticket, is the same.
You are risking that money to make a profit or win the jackpot.
The one big difference is that you are not leaving it to chance with investing and trading.
When you start trading cryptos, you must use strategies to make profits.
And there are lots of different strategies.
It is vital to remember that if you want to make profits or returns, you must know what you are doing, especially when trading in such a volatile market.
Even if you use a broker, know how they work and how they intend to make returns for you.
It is in your interest to do so.
If you want to learn more, there are multiple online educational courses that you can get your hands on!
So, moving on.
The Cryptocurrency Market & How It Works
The cryptocurrency market is decentralized.
That means it exists as an unregulated market. It is free from intervention or interference from the government or the banks.
That is until recently.
When cryptos first appeared as Bitcoin in 2009, banks, corporations, and governments quickly dismissed it as something that would not last.
That has all changed dramatically.
These institutions are now adopting cryptos, and regulations will be in force within the next year or two.
That should not affect the market. It simply means that now these institutions support cryptocurrencies, cryptos are here to stay.
For investors, that is a good thing. It means there is confidence in cryptos as an asset.
For more on the history of cryptos, check this guide out: A Beginner’s Guide To Blockchain & Cryptocurrencies.
Market Movements
The market needs to move to make profits when crypto trading and prices need to go up or down.
Any profit you make depends on your chosen crypto and how you believe the price will go.
Other factors include:
- Supply of cryptos on the market
- Demand for any one crypto (the ups and downs of Bitcoin are a good example)
- Value of any specific crypto
- General perception plus analyst’s forecasts
- Growth and development of any specific crypto
- How any specific crypto integrates with other digital forms in the crypto ecosystem
- Survival – how crypto will go on to perform should it experience a significant incident such as a security breach
Useful Terms To Know
- Leveraging
If you trade with a CDF platform your broker might offer you leverage. Say you have $100 as your trade budget. Your broker might make $1000 available for you to trade with.
These extra funds increase your potential returns. You then pay the difference to your broker (plus fees).
However, the same applies should your trade fail. You would owe that leveraged amount to the broker.
Therefore leveraging is a high risk strategy. You should research this fully before engaging in it as it can be costly.
- Lots
Lots refer to the form cryptos are traded. Lots are batches of crypto coins/tokens. Lots help determine the trade size of the crypto.
Lots are usually small because crypto movements are highly volatile.
- Pips
A pip is a unit of measurement. It refers to a one-digit movement in the price of a crypto, either up or down.
One pip is generally the equivalent of $1. But that may only apply to the higher trading cryptos.
The newer crypto sight has a pip of 1 cent or even less.
Summary
Trading cryptocurrencies can prove rewarding. But it is essential you know everything you can about what it involves.
The best way to do that is to learn crypto trading.
To find out more get in touch, here IM Insider.
